4 Quickest Ways to Get a Mortgage Approved
If you want to become a homeowner, you must be prepared at every stage. Aside from following interest rates and looking for the ideal property, the most important step in the process is applying for a mortgage.
While it may appear difficult, it may be simpler if you arrange your financial matters beforehand.
Here are seven strategies to assist you in getting your mortgage application accepted.
1. Examine your credit score:
Before you go too far into the mortgage application process, take a step back and review your credit reports.
The state of your credit will play a significant role in obtaining a good interest rate on a house loan or even getting accepted at all.
Credit ratings in Canada range from 300 to 900 and are divided into five categories:
- Poor
- Fair
- Great
- Very satisfactory
- Excellent.
The specific categories differ depending on which credit agency is utilized, but the method is fundamentally the same.
Your credit score is a picture of your entire financial health, so knowing what it is, is critical.
Mortgage companies would check your credit score to determine your financial reliability and capacity to repay your loans.
The better your credit score, the more probable it is that you will be awarded the best mortgage rates in Canada.
Point to ponder:
1. Check your credit reports for any inaccuracies or accounts that aren’t yours that could have harmed your credit.
2. Check the accuracy of your personal information, such as your name, address, and Social Security number.
3. Check that the balances and status of the credit accounts and loans indicated on your reports have been recorded correctly.
4. Check to see if any strange accounts have been opened, as this could indicate suspected identity theft.
If you discover an inaccuracy, you can file a complaint with the agency that is publishing the wrong data by going to its website. After you file a complaint, the agency must investigate and respond within 30 days.
2. Improve your Credit Score
Now we can move on to the next phase. Unless your credit is in tip-top shape (in which case, congrats), you’ll want to spend some time cleaning it up.
Your credit scores are not included in your credit reports. Fortunately, obtaining your credit score for free is rather simple. Many major credit card companies, for example, will provide you with your FICO score for free.
While we provide access to your VantageScore, you should be aware that lenders use this scoring model far less frequently than FICO, and your VantageScore may differ by several points. This demonstrates our credibility and secured credit card ratings.
Most conventional lenders consider 620 to 640 to be the minimum credit score required for a mortgage.
Some government-backed loans will allow you to borrow with as little as a 500 credit score if you meet certain other requirements. However, the higher your credit score, the more affordable your loan will most likely be.
Making all of your debt payments on time and in full is one of the best ways to improve your credit score. Payment history accounts for 35% of your credit score, making it the most heavily weighted factor.
Another 30% of your credit score is determined by the amount of debt you owe in relation to the total amount of credit extended to you, so it’s best to keep your debt as low as possible.
Point to ponder:
Avoid making large purchases on credit or opening new lines of credit for several months before applying for a mortgage, as this can have a negative impact on the average length of your credit history and the number of hard inquiries.
3. Calculate How Much House You Can Afford to buy
Before you start looking for your dream home, make sure you can afford it.
Using the 28/36 rule, calculate how much house you can afford to buy. This is your debt-to-income ratio or the percentage of your gross monthly income that is dedicated to debt repayment each month.
A DTI of 50%, for example, means that you spend half of your monthly pre-tax income on debt repayment.
Your “front-end” DTI, which includes only mortgage-related expenses, should ideally be less than 28 percent.
Your “back-end” ratio, which includes the mortgage and all other debt obligations, should be less than 43 percent, preferably less than 36 percent.
If your debt-to-income ratio is too high, you’ll need to work on reducing or eliminating some existing debt before applying for a home loan.
Point to ponder:
Remember that your monthly loan payment is only one piece of the puzzle — you’ll also have to pay interest, homeowners insurance, property taxes, and possibly homeowners association fees.
You’ll also need to think about how much of a down payment you can make and whether you’ll have to pay private mortgage insurance (PMI).
There are also numerous online calculators available to assist you in running the numbers.
4. Decide What Type of Loan You Want
You’ll need to weigh your options to determine which type of mortgage loan is best for you. Here are a few things to keep in mind:
- Conventional Mortgage
Mortgage loans are classified into two types. The first type of mortgage is a conventional mortgage, which is provided by a private bank, credit union, or online lender.
These loans typically have more stringent eligibility requirements and require larger down payments.
- Fixed VS Variable Interest Rate
Another important consideration is deciding whether to have a fixed interest rate for the entire term of your loan or one that can fluctuate.
Fixed-rate loans are generally a safe bet because you know exactly how much your monthly mortgage payment will be. Variable rates are typically less expensive in the first few years of a loan.
However, the rate will reset one or more times during the loan term based on market conditions. That means your interest rate may rise in the future, making your mortgage payments unaffordable.
- Short VS Long Term
Finally, think about how the length of your loan affects the cost. On the one hand, a 15- or 20-year loan allows you to pay off your loan faster and save money on interest charges.
However, this means that your monthly payments will be significantly higher, stifling some of your cash flow. In fact, in this case, you may need to borrow a smaller amount.
Example:
Consider the following: When all is said and done, a $200,000 loan at 4% interest for 15 years would cost you a total of $266,288. If the term is extended to 30 years, the monthly payment is reduced by about a third, but you pay an additional $77,451 in interest over the life of the loan.
Bottom Line
You can, on the other hand, extend the loan term to 30 years or longer. This would make your monthly payments more manageable and even allow you to borrow more money.
However, increasing the number of years you spend repaying the loan increases the amount of interest paid over time.
